MSC INDUSTRIAL DIRECT CO INC Q2 FY2025 earnings call

• Execution: Maintained momentum in high-touch solutions with in-plant program count up 24% and installed vending machines up 9%. Completed website upgrades to improve customer experience, including search, checkout, and personalization. Saw early positive momentum in leading indicators like new customer acquisition and website traffic.
• Tariff management: Direct COGS exposure to China is ~10%; took select price increases in late March; leaned on Made in USA products (over 200,000 in stock) and productivity tools for customers.
• Productivity initiatives: Public sector growth achieved, marketing automation and AI use expanded, network optimization on track to deliver $10M-$15M annualized savings by FY '26.

In the fiscal second quarter, vending had average daily sales up 1% year-over-year, representing 18% of total company net sales. Sales through in-plant programs also grew 1% year-over-year and accounted for approximately 18% of total company net sales.

• Fiscal third quarter: Expected average daily sales down 0% to 2%; adjusted operating margin between 8.7% and 9.3%. Gross margin expected at 40.9% ±20 basis points, with supplier rebate benefits not repeating.
• Full-year: Depreciation/amortization $90M-$95M, interest/other expense ~$45M, capex $100M-$110M, tax rate 24.5%-25%, free cash flow ~100% of net income.

• Macro environment uncertainty impacting demand. - Tariff fluidity with second-order effects on product mix, demand levels, and supplier cost/timing being difficult to predict.

Q: How is the top-line guide and back-half performance being thought about?

A: Kristen Actis-Grande said they're not assuming significant further erosion, cautious on end markets, fairly flat with Q2 into Q3, and not contemplating much top-line improvement from tariffs.

Q: Can you provide more detail on the price increases in late March?

A: Kristen Actis-Grande said it was mainly on China-related products, about 0.5% price benefit on top line, fluid situation with suppliers not providing firm info yet.

Q: How are web enhancements and marketing initiatives progressing?

A: Erik Gershwind said progress is on track, leading indicators like new customer acquisition and website KPIs are encouraging.

Q: Thoughts on end markets like automotive and aerospace?

A: Erik Gershwind said heavy manufacturing remains soft but improving, automotive still soft, aerospace outlook robust but uncertain with recent events.

Q: Price/cost in inflationary period?

A: Erik Gershwind said expect to pass pricing along, lean on Made in USA products and productivity tools to support getting pricing through.

Q: Export exposure impact?

A: Erik Gershwind said tough to size, but export demand softening would impact them, with shift to Made in USA potentially buffering some impact.

Q: Share gain initiatives timeline?

A: Erik Gershwind said seeing sequential improvement through the quarter and into March, with core customer improvement, and leading indicators showing initiatives are on track.

Q: Effect of in-plant/vending on margins and outlook?

A: Kristen Actis-Grande said in-plant/vending have gross margin pressure but op margins strong long term; Erik Gershwind said fixed cost structure on these accounts is encouraging for outlook beyond '25.

Q: Price offsetting tariffs and product types from China?

A: Kristen Actis-Grande said less than 5% of COGS is where they're importer of record from China; Erik Gershwind said more towards MRO than metalworking.

Q: E-com sales and 'other' category?

A: Kristen Actis-Grande said e-com affected by December/January timing and public sector mix; 'other' category has pass-through and low weighted exposure, don't draw strong conclusions from its decline.